Rent to Rent is Immoral
‘Rent to rent’ sometimes known as rent2rent is the latest get quick scheme dreamt up by the property ‘fast buck’ merchants.
What is Rent to Rent?
Well, ostensibly it involves predator like behaviour from opportunist tenants, who rent a property that they then let out as an HMO, letting out the individual rooms separately. This tenant then makes a profit by drawing in a larger rent from the multiple tenants than the rent they are paying out to their unsuspecting landlord.
Opportunists or vultures?
The ‘rent to rent’ exponents claim that their behaviour is entirely legal and is purely exploiting an opportunity presented by lazy landlords who have failed to see the opportunity of multiple lets in their property to maximise their rental returns.
As a landlord who has both let properties on a room by room basis and now chooses to let the entire rental property; I can tell you that this is rubbish! Firstly, any landlord knows that if they have a large house and fill it with a load of professional tenants or students renting separate rooms then they will generate more rental revenue. However, experienced landlords also know that the hassle factor of having half a dozen footloose tenants renting a large house instead of one family is much greater. The turnover of the individual tenants is likely to be much higher. This generates higher advertising and marketing costs for a landlord.
But the main thing is that a house of six is going to result in a much greater ‘wear and tear ‘on the rental property and its interior, resulting in a more intensive refurbishment and repair regime. On top of this there will be greater demands on toilets, showers, kitchens, which could possibly require a significant amount of capital expenditure to make the buildings suitable for multiple occupation. This is not withstanding the fact that the fire safety requirements for a HMO are far greater than for a single let in the same property. Not only that, HMOs are subject to a different regulatory regime where the landlord is required to obtain a licence from the Local Authority.
Rent to rent – immoral & illegal?
At the heart of ‘rent to rent’ is how many landlords are actually aware of what their tenants are up to. I suspect very few. Most Assured Shorthold Tenancy Agreements specifically exclude sub-letting without express consent. This includes Property Hawks own Free AST which states in Para 3.10 that:
“ The Tenant hereby agrees with the Landlord as follows:-
3.10 Not to sublet or part with possession of the property.”
Some ‘rent to rent’ ‘experts’ suggest that you can let to high end corporate clients, others are a little bit more down market with their aspirations looking to let property to LHA recipients. Either way they seek to gain control of a landlords’ property often misleading both the landlord and their tenants about the true validity and legality of the situation.
This makes most protagonists of ‘rent to rent’ not only immoral in that they are misleading their landlord, but also illegal, flying in the face of their tenancy agreement.
Is ‘rent to rent’ illegal?
The short answer is probably and almost certainly so. It potentially invalidates the landlord insurance.
An industry expert points out that it is vital that landlord insurance also represents the risk. HMOs are generally not covered on a standard landlord policy which would more than likely lead to any claims being declined. Many insurance companies will also insist on an AST between the landlord and tenants/occupants and the insurance will also specify that there is no subletting. The long and the short of it is anything outside of the “normal” process of letting a property could invalid your insurance, now imagine you have a claim for a fire and your insurance is invalid, maybe that guaranteed rent wasn’t such a good idea.
In addition it is ultimately likely to be against the conditions of a landlord’s buy-to-let mortgage, which means in theory the buy-to-let lender could call in the loan. Resulting in the forced sale of the landlord’s property. The essence of whether ‘rent to rent’ is illegal is whether the agreement between the parties is legal. One legal expert recently commented that the agreements that he had come across varied from 2 to 10 years. Most are poorly drafted and if they are not drafted as a commercial lease then there are real doubts about their legality. Those rent to rent agreement that just grant licences to the subsequent occupants will not be worth the paper they are written on for the tenants.
Landlords safeguarding themselves against ‘rent to rent.’
There are obviously some properties that are more at risk of appealing to these scammers. Larger properties in metropolitan areas are obviously their main target. These houses are ripe for sub-letting on a room by room basis. The best way for a landlord to safeguard against this happening to their rental property is to ensure a regular inspection regime of your rental property. This is always good practice, whatever property you are letting out.
‘Rent-to-rent’ promoters
As is usual with these property get rich schemes. The media space very rapidly becomes full of those scammers who are desperate to tell you how they made a fortune, and can now charge you a small fortune to share the benefit of their ‘experience.’ What they never explain clearly is that if they are making such a fortune why are they so keen / desperate to tell the world about their scheme.
I suspect that neither is it as profitable or they are as successful as they try and make out!
The Guardians take on ‘rent to rent’
Do you have a view on ‘rent to rent’?
Have you been affected by it?
Please post your comments below.
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Rent to rent can actually offer the landlord a hassle free investment with a guaranteed rental income but I would advise you use a professional reputable company.
Totally agree Robert I have seen both sides of the fence on this one when it goes wrong the rent to rent landlord blames everyone apart from theirselves. Then everyone loses unless you have insurance to cover yourself…..I think it should be more tightly regulated.
I have experienced first hand where a rent2rent landlord manager took on a property hooked out all of the original housemate tenants, the property was in maintained condition, so to make the house pay and cover the cost of paying the owner the rent2rent landlord has to overprice the rooms, 8 months go by and he does not fill the rooms at his high price of the rooms, he starts blaming the tenants, the location, the cleaners the owner for not supporting him……
Very presumptuous to think all properties have mortgages and all properties on rent2rent run as HMOs. There is a variety of other scenarios rent2rent exists and have right to do so without being claimed illegal or immoral
Rent 2 rent isn’t illegal as long as you are legally compliant and follow all the government guidelines. It would be presumptuous to think it is. The main issue is where rogue landlords operate to get quick rich and where people sell it as a lifestyle choice. It is extremely hard work to professionally manage properties full of tenants and essentially, just like estate agent they are there to make profit and should be subject to similar regulation. So the problem is that the market isn’t regulated. Once it is it’ll be classed as legal by the general public.
Rent 2 Rent has its spot in the H.m.o. Market, it just falls down when you have an individual or a small group of so called Hmo merchants preaching what a good market it is to be in and we will take you through the steps giving you vital information on how to make a mint, where in certain situations the Hmo has been taken on for 3 4 5 years and they do or they pretend they have the financial resources seen the the podcasts on you tube and know all the pitfall, then the housemates and tenants move in and the rent 2 rent landlord manager gets greedy or is not making the financial expectations he or she expected, maintenance of the property does not get done or gets done so cheap its a waste of time, tradesmen cleaners not getting paid, housemates get disgruntled which is understandable, landlord manager has to price the room up more to try to recoup the money from their cock ups disharmony builds up in the house, respect to other housemates goes a rye arguments break out little gangs form with the housemates world war 3 is on going until someone leave’s the house or the police get involved.
Other than the totally legit, correctly costed scheme there are three common models for rent-to-rent HMOs:-
The “naive model” involves an owner accepting a “guaranteed” rent from a Ltd company middleman with no assets who chances his arm and if he doesn’t make enough money simply withholds paying the owner whilst continuing to collect the rent from the tenants. Bills “included” in the rent often get put in fake names and don’t get paid. It takes many months for the owner to get the house back.
The “collusive” model where the owner and intermediary have a loose arrangement where the intermediary may claim to be both the actual landlord as if holding a lease, but also may claim to be just the agent to obfuscate things if a tenant tries to sue.
Again bills don’t necessarily get paid and deposits are often held unprotected within the Ltd company intermediary, which can fold rather than pay up. Some of these properties manage to fulfil licence conditions and appear “respectable” but a look at the names involved usually throws up a history of dissolved companies.
The “criminal” model – this is the one you most often see on “poverty porn” shows like “Nightmare Tenants, Slum Landlords” – here the intermediary fills the house with ridiculous numbers of occupants who are often foreign, possibly illegal immigrants, who work for the LL and who mysteriously get moved elsewhere when the council come to inspect a now empty house. This model can involve collusion or a naive owner but regardless in most cases the owner will say “I know naarting”.
Hi John
There is a forth one selling the dream of paradise and the land of milk and honey, great investment and it’s so easy if you follow all our expert advice because we’ve been there got the tee shirt and are experts we’ve made all the mistakes so you won’t oh so you’ve been left a large sum of money from your granny or some of your pension, a family member left you a windfull, back in the 2000s and we or I invested in this hmo, and we can tutor you on how to make money like us and have great income or get off of that treadmill of life.
Really…why do I need you to peddle me a dream when I can have my own for free. Just check out the sections on Property Gurus
You are right Chris always best to have your own dreams and expectations… it’s just some people out there are selling rent 2 rent as a life style pot of gold at the end of the rainbow investment.
When it’s more than that and all the responsibilities that go with it…to the tenants, tradespeople and neighbourhood.
To take things further on this topic I expirienced an instance when a self styled no everything cloth eared
Rent 2 Rent landlord manager tried to do his own diy electrical job and put up a chandler in the entrance hall in the property “to save some money???”
Did not go good could of potentially burnt the place down.
On another, occasion the rent to rent landlord manager left the tenant, housemate customers without a clothes drying machine for 6 months because he was short on funds….left the housemates without a Tv in the communal sitting room because he would have to supply and fit a new
TV aerial.
I would suggest to any Hmo renter, first establish in writing if the house/room is a Rent to Rent project who the owner of the property is? Who the landlord manager is and the company name is directors and how long they have been formed ? and a copy of the current in date hmo property insurance policy in the landlord mangers name and what is covered in the policy he or she holds, however good or striking, cheap impressive the room or house is, if all this cannot be established “walkaway” however desperate you are for a residence to live.
Hi Guys,
Can anyone suggest what kind of checks to be done for a rent-to-rent company – references, credit checks, guarantors, other landlord references? The directors do not have good credit history, how this impacts?
In normal BTL, personal references, credit history, employer payslips etc are verified?
In the current circumstances, it seems most of the R2R companies cannot find professionals or students.
Many thanks